Saturday, 1 July 2017

Thousands of people
marched in an anti-Tory, anti-austerity rally in London today - during which Jeremy Corbyn
declared "This is the movement that
will win the next election". He's probably right about that. The way
this cult of personality is gathering momentum against a mediocre Conservative
government with a leader utterly devoid of charisma, Labour is very likely to
win the next election.

However, the premise on
which today's march, and the movement in general, is based is faulty and
illogical. In actual fact, on the austerity issues up for discussion here, the
demonstrators have got their reasoning exactly backwards on both issues. They
are advocating the very thing they should be opposing, and opposing the very
thing they should be advocating.

I'll explain. Suppose that
in the past few years your monthly spending has exceeded your monthly wages. Worried
about the household budget, your partner suggests three ways in which you could
be more fiscally responsible.

A} Cut down on your
spending

B} Increase your earnings
(either through more hours or higher wages)

C} Go to the cashpoint
more often to ensure you’re never short of money

I’m sure no one needs
telling why A and B are viable options, and why C is a ridiculous suggestion.
But just in case there’s any doubt, the reason option C is ridiculous is that
drawing out more of your finite supply of money is not going to help your fiscal
irresponsibility if your spending already exceeds your earnings - it will, in
fact, compound your irresponsibility.

Now replace you and your household
bank account with the government and the treasury's collection of taxes, and
suppose that in the past few years your government’s spending has exceeded its
income and been irresponsibly spent. What could the government do?

A} Cut down on spending

B} Increase our taxes

Option A is a viable
option. Spending less money means working hard to find government waste or
government non-necessities and cutting back on all the profligate expenditure
it can. But this is the very thing that Corbyn, McDonnell and the thousands marching
today were arguing against. In times when fiscal irresponsibility has been
levelled at the government, the demonstrators want more government spending,
not less - the very opposite of the fiscal responsibility most people want to
achieve.

But what about option B?
Option B is not a viable option, because increasing our taxes is not like
earning more money. It is more like option C in the first scenario – it is like
being in a state of fiscal irresponsibility yet going to the cashpoint more
often to ensure you’re never short of money.

The government’s money comes
primarily from taxpayers – and they choose how they tax us. But there is a caveat that
the left seem to be missing - the taxpayers are like the government’s
cashpoint; whatever you take out this month leaves less for next month, and so
on. Unlike in scenario 1 when cutting down on your spending or increasing your
earnings is like adding to your monthly income, government's increased taxation
is not like adding to their monthly income, it is like paying a visit to the
cashpoint.

Yet despite this, option B
is the one Corbyn, McDonnell and their cult followers are arguing for. They
have their reasoning completely backwards in both cases - they should be
advocating A and opposing B, not the other way round. Instead they are arguing
that cutting spending (profligacy?) is detrimental and that an extra few
billion pounds in tax hikes can change government spending from fiscally
irresponsible to fiscally responsible.

That's as silly as saying
that buying a £300 packet of toilet rolls can be fiscally responsible as long
as you go to the cashpoint and draw out the money there. Taxing more does not
make a government fiscally responsible - the only thing that makes a government
fiscally responsible is spending less, by cutting out all the waste and
non-necessities from its expenditure (don't forget, government spending is at a
record high).

I hope now you can see
that the enumeration is crystal clear. You as a worker can increase your income
by working more or spending less, amounting to lower depletion of your assets.
The government also cannot increase its taxation without a lower depletion of
its assets.

Whatever they don’t tax is either spent or it is saved privately by
the people that earned the money. If it is spent (freely)
then there is a net economic gain because both buyer and seller partake in a
mutually beneficial transaction. And if it is saved then it is available for
banks to use (savings are basically us lending banks our money for a small
return of interest), and it is still available for taxation when it exchanges
hands next time. Similarly, if you don’t spend that £300 on those toilet rolls,
then the money either stays in your bank gaining you interest, and being
available for banks to invest, or it is spent on one of those mutually
beneficial transactions to which I just alluded.

Unless the demonstrators
get the basics right, they will be running full pelt down a dark tunnel with a
brick wall at the end, into which they will smack their silly heads. Instead of
congesting parliament square and making lots of waffling reverberations, they'd
be better off reasoning things through properly, and then putting pressure on
the government to cut much of its waste and inefficient spending. The trouble
is, a lot of that waste and inefficient spending comes in the shape of things
the left historically supports - so don't hold your breath there either.

About Me

This is the Blog of James Knight - a keen philosophical commentator on many subjects.
My primary areas of interest are: philosophy, economics, politics, mathematics, physics, biology, chemistry, theology, psychology, history, the arts and social commentary.
I also contribute articles to the Adam Smith Institute and the Institute of Economics Affairs.
Hope you enjoy this blog! Always happy to hear from old friends and new!
Email:j.knight423@btinternet.com